The captain and the firefighter: how fiscal stimulus screwed up monetary policy

In the basic New Keynesian model the Fed is seen as something like a ship’s captain, which steers the economy between the twin dangers of recession and high inflation.  They do so by controlling aggregate demand.

It’s not  surprising that many people don’t see the Fed that way; after all, few people bother to follow monetary policy very closely, and indeed few even understand it very well.  But I’d like to argue that the problem is getting worse, that people who should understand have become confused.  And I’d like to suggest that fiscal stimulus played a role.

In my view the key mistake occurred in early 2008, when the Bush administration called for fiscal stimulus in the form of tax rebates.  Recall that lump sum tax rebates have no supply-side effect, so this was pure demand stimulus.

The Bush policy made no sense, and yet very few people pointed that out.  Some conservatives argued against it on “permanent income hypothesis” grounds.  That may or may not be correct (it’s probably partly correct) but in fact it was an extremely damaging argument.  The problem with the conservative argument against fiscal stimulus is that it created the impression that more demand was desirable, and that tax rebates were a bad idea for the reason that they’d fail to boost demand, not because no extra demand was needed.

Here’s the argument the conservatives should have made:

The Fed is responsible for controlling aggregate demand under our system.  They’ve been given to duty to set demand at a level most likely to hit the dual mandate.  If there’s a problem, we need to reform the Fed, or change the mandate.  Fiscal stimulus makes no sense, as the Fed will simply offset the policy with whatever monetary policy is most likely to hit their demand target.  Congress should never, ever, vote for fiscal stimulus, rather they should vote to change the Fed’s mandate.

However almost no one made this argument, and thus the damage was done.  Both sides of the debate implicitly acknowledged that if growth was needed; that “it sure would be nice if the fiscal authorities could provide some.”  Yes, they disagreed over the factual issue of whether fiscal stimulus worked, but that’s a side issue.

The effect of the debate over Bush’s fiscal stimulus was to marginalize the Fed in the minds of the People Who Matter.  Who are the People Who Matter?  They are a collection of academics, reporters, think tank people, politicians, Fed officials, big bankers, and various other groups that participate in the debate over monetary policy.  After the Bush tax rebate the Fed stopped being thought of as the institution that steers the economy, or at least that steers AD.  But the Fed must have some important role, so if they aren’t a ship’s captain, what are they?

Several years later progressives discovered to their dismay that the Fed had become a sort of firefighter.  If it’s not the Fed’s job to insure adequate AD, and they clearly have a major role to play, the most obvious alternative is firefighter—the agency that puts out inflationary fires.  Notice I don’t say “target inflation,” as that would imply they want to raise inflation 50% of the time and lower inflation 50% of the time.  No, they became an anti-inflation institution.

I think this occurred for two reasons.  First, in the Keynesian model inflation is caused by growth.  If it’s the fiscal authority’s job to spur growth through tax rebates, then the Fed would seem to have no role in raising the rate of inflation.  They sit back and wait for “inflation to become a problem” and then leap into action like firefighters.  Don’t believe me?  OK, do this test:  Count the number of times “inflation becoming a problem” is used in the press over the past few years, or even the past few decades.  Then count the number of times the reporter was referring to excessively high inflation and the number of times the reporter was referring to excessively low inflation.  I’d guess the numbers would be roughly 100 to 1.

Conservatives may pay lip service to “stable prices” but in practice they never want higher inflation, even when there is deflation.  Why is that?  Because when there is deflation (1930-33, and 2009) interest rates tend to fall to zero and people hoard lots of money.  To most conservatives that looks like easy money.  And that’s an “inflationary time bomb” waiting to explode (or course it isn’t really, as we see in Japan.)  So even though in principle some conservatives might favor easy money to prevent deflation, in practice they don’t.  The Fed is a firefighter, nothing more.  Hence if I propose 5% NGDP targeting, a policy roughly followed for several decades, they become apoplectic about “inflation.”

Why did I pick on the Bush stimulus; why not the bigger Obama stimulus?  I wanted to pick a time period when the economy was clearly not in any sort of liquidity trap, in order to show that the zero bound isn’t the real problem.  Everyone knows that if fiat money regimes really want to inflate, they can find a way (well perhaps everyone except MMTers.)  The zero bound isn’t the issue.  The real problem is that we stopped thinking about the Fed as a ship’s captain, and started thinking of it as a firefighter.  And now we are asking the Fed to stop being a firefighter.  And that a terrifying prospect for many people, even many of the People Who Matter.


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40 Responses to “The captain and the firefighter: how fiscal stimulus screwed up monetary policy”

  1. Gravatar of David Pearson David Pearson
    12. November 2011 at 08:09

    Scott,
    You wrote, “First, in the Keynesian model inflation is caused by growth.”

    Don’t you subscribe to the idea that the output gap will contain inflation as the Fed expands AD? If so, then inflation will pick up once the economy reaches potential (it will reach the LRAS curve). Inflation will be caused by growth, in other words.

  2. Gravatar of John John
    12. November 2011 at 08:20

    I think my economic views are fairly conservative and the idea of the Fed not being there as a firefighter doesn’t scare me. I just don’t think anything good can come from more expansionary monetary policy; in the long run at least.

    For David,

    Output gaps, assuming that’s a meaningful term, do not do anything to contain inflation. High inflation and economic slack exist side by side more often than not. If the theory behind output gaps and inflation were true, that would never happen. But look at country’s stats on CIA factbook or the back of the economist and see who’s right.

  3. Gravatar of David Pearson David Pearson
    12. November 2011 at 08:25

    BTW, it seems we need 10% NGDP growth for two years to fill the 10% gap to trend, or 7% for five years. I notice you told Kelly Evans you’d like to see “6-7% for a couple of years.” Have you changed your mind on the optimality of quickly returning to trend NGDP levels?

  4. Gravatar of Craig Fratrik Craig Fratrik
    12. November 2011 at 09:13

    I’ve enjoyed discovering this blog and reading for a month or two, but am somewhat uneducated on these matters. I don’t really understand the claim that the Fed offsets fiscal policy with monetary policy.

  5. Gravatar of dilletaunted dilletaunted
    12. November 2011 at 09:15

    “Everyone knows that if fiat money regimes really want to inflate, they can find a way (well perhaps everyone except MMTers.) ”

    no, mmt’ers believe this, they just don’t generally believe that the fed alone can. which isn’t *that* unusual.

  6. Gravatar of Bill Woolsey Bill Woolsey
    12. November 2011 at 09:39

    John:

    Do you know what an output gap is?

  7. Gravatar of Becky Hargrove Becky Hargrove
    12. November 2011 at 10:08

    One of the prime steering mechanisms of the ship fell into disrepute, and even as it is offered here it is done so as a solution among others.
    http://www.philadelphiafed.org/research-and-data
    Supply side clearly leaves people wealthier. Even so, when all economic transactions are monetary, supply side can be like a dog chasing its own tail, as people struggle to reintegrate others into jobs where they are not needed. Clearly defined lateral skills exchange economies can give people the courage to embrace the supply side solutions promoted by this Fed report

  8. Gravatar of Becky Hargrove Becky Hargrove
    12. November 2011 at 10:12

    I didn’t think I had enough link. It can be picked up here:
    http://gregmankiw.blogspot.com/2011/11/supp

  9. Gravatar of Becky Hargrove Becky Hargrove
    12. November 2011 at 10:16

    Drats! post title, “Supply-Side Policies as a Way to Boost Aggregate Demand”

  10. Gravatar of Benjamin Cole Benjamin Cole
    12. November 2011 at 10:18

    Another absolutely brilliant blog by Scott Sumner.

  11. Gravatar of ssumner ssumner
    12. November 2011 at 10:54

    David. No, I think the SRAS always slopes upward, even when there is slack. So nominal growth leads to some inflation and some real growth any time there is slack.

    Oddly, I often have to argue the opposite, people insist QE2 shows that stimulus results almost solely in inflation, with no real growth. Right now I’d say it’s more than 50% real growth.

    John, You said;

    “I just don’t think anything good can come from more expansionary monetary policy; in the long run at least.”

    Agreed, but in the short run it helps and in the long run it doesn’t hurt. That’s a net plus.

    You can have inflation during slack, as we saw in the 1970s.

    David; You asked:

    “Have you changed your mind on the optimality of quickly returning to trend NGDP levels?”

    Yes, in 2009 I favored going all the way back. I still think that would be better than the status quo. But we are so far down the road that I no longer think it optimal to go all the way back. Rather I’d like to see us go part way back, but in the future set an explicit target, level targeting. Once we do that I’d always favor going all the way back. The problem now is than many post-2008 wage and debt contracts were signed on the assumption that we won’t go all the way back. So any decision will be suboptimal for one group or another. My plan is a compromise.

    Craig. If they target inflation, then they offset any non-monetary factor that would influence inflation–that includes fiscal stimulus.

    dilletaunted, I meant the Fed alone. Even Krugman thinks a high inflation target would work.

    Becky, I couldn’t get the links to work, but I’ve also argued that AS and AD are entangled in the real world.

    Thanks Ben.

  12. Gravatar of Don Geddis Don Geddis
    12. November 2011 at 11:12

    Craig Fratrik: “I don’t really understand the claim that the Fed offsets fiscal policy with monetary policy.”

    The problem being solved, is that the economy has unemployed resources, which are going to waste. You want to put those resources to work. You do that by boosting aggregate demand, i.e. by having more buyers trying to purchase stuff. (When more buyers show up, then suppliers will hire more people, produce more stuff, etc.)

    One approach to boosting the total buyer demand in the economy, is fiscal policy. I.e. tax cuts, or additional deficit spending. All else being equal, that does indeed raise the total amount of demand that buyers are requesting from the economy.

    The problem is that the Fed “moves last”. Fed actions are far faster than fiscal stimulus, and far more powerful. And they also affect aggregate demand.

    The point is that the Fed is really the one in control. Whatever AD level the Fed wants the economy to have, it can achieve that, regardless of what fiscal policy the rest of the government is attempting.

  13. Gravatar of Jake Jake
    12. November 2011 at 11:12

    I’m a bit confused. You had a couple articles that said that the fiscal multiplier is a measure of the central bank’s incompetence (the freer the hand of the central bank, the the lower the fiscal multiplier, I think). However, in one of David Beckworth’s blog posts he seemed to have said the exact oppisite, that fiscal will work if the Fed has a free hand to let it work. Now the title of this article seems to be saying that too. Am I misunderstanding or is their a way to reconcile this?

    Also, with your views on a consumption tax, if you have enough time could you read this (it’s short):
    http://www.optimist123.com/optimist/2007/08/tax-me-now-and-.html
    He says that consumption taxes could hurt savers.

  14. Gravatar of marcus nunes marcus nunes
    12. November 2011 at 11:23

    Scott/Becky
    A more readable version of the paper is here:
    http://www.voxeu.org/index.php?q=node/7258

  15. Gravatar of marcus nunes marcus nunes
    12. November 2011 at 11:38

    Scott
    And Cassel had it right on “fiscal stimulus” also!
    http://thefaintofheart.wordpress.com/2011/11/12/pity-cassel-missed-the-debate-he-would-have-won-hands-down/

  16. Gravatar of Mike Sax Mike Sax
    12. November 2011 at 13:35

    Hello Scott! I find your work very interesting-and don’t know exactly how to take it.

    I have written about you.
    http://diaryofarepublicanhater.blogspot.com/2011/11/sumners-man-with-plan.html

    For me your appeal is you have a plan, an “agenda” even- and in this day and age men with agendas are in short supply-in economic terms we could say there’s a scarcity of men with an agendas.

    The reason I say I don’t know how to take you is I’m not sure what I think of your agenda. But appreciate that you have one.

    Right now in our age of gridlock and impasse I should say there is a “surplus” for any actual ideas, anything but the status quo-or I’d be willing to pay such a surplus…

    I agree with you, I as well am tired of living in Krugman’s world of Depression economics-as he is too.

    On the one hand when you say things like this:

    “If there’s a problem, we need to reform the Fed, or change the mandate. Fiscal stimulus makes no sense, as the Fed will simply offset the policy with whatever monetary policy is most likely to hit their demand target. Congress should never, ever, vote for fiscal stimulus, rather they should vote to change the Fed’s mandate.”

    I’m not sure I hear you right: are you claiming that there should categorically never be a fiscal stimulus of any kind passed ever?

    What’s enigmatic about you is while usually when I here ideas that I think are terrible I don’t follow the logic they use to get to them. I usually can follow your logical premises right to when you come up with these kinds of punchlines.

    I guess what you are arguing is that if Congress passes a fiscal stimlus, the Fed will tighten in response so what benefit it might do is a wash in any case?

    In any case I can’t follow you to this result.

    Yet what you say about the conservative aversion to inflation is spot on. I guess that’s what’s hard about reading you-I agree with much that you say about monetary policy, that there is what I call “an inordinate fear of inflation” for conservatives.

    And NGDP certainly sounds plausible. I think I even have begun to understand the advantages you find in it versus simply raising the inflation rate-if I understand you would take that too if that’s what’s on offer-that what really matters is not price stability but nominal stability.

    I suppose at bottom I certainly agree that monetary policy has a major role, but am not set to downgrade fiscal policy the way you do.

  17. Gravatar of John John
    12. November 2011 at 18:27

    Scott,

    The Austrian argument is that expansionary monetary policy has bad effects in the long run by creating the boom bust cycle. Even Friedman admits inflation’s role

    Bill,

    An output gap is the difference between an economy’s potenital GDP and actual GDP. It does nothing to prevent inflation as some of the highest inflation economies in the world are also the ones most underperforming their potential.

    But what the heck is an economy’s potential GDP anyway? That’s not knowable. What are the best regulatory rules, monetary policy, and fiscal policy that would put an economy at its potential output. Saying that the US economy in 2006 was at it’s full potential was probably wrong. What if we were allowed to drill for oil anywhere? What if we had no regulations? It is possible that output would have been much higher. Is that the economy’s true potential or were we at potential simply because unemployment was around the supposedly natural level?

  18. Gravatar of Full Employment Hawk Full Employment Hawk
    12. November 2011 at 21:25

    “I just don’t think anything good can come from more expansionary monetary policy; in the long run at least.”

    “The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.”

    The Keynes who wrote this in 1923 was a monetary disequilibrium theorist.

    The most serious economic problem currently facing the U.S. economy is that we are in a depression. If we are to get out of it in a reasonable time, rather than remaining in it in the long run, we need expansionary short-run policies. And that is where expansionary monetary policy plays a crucial role.

  19. Gravatar of Full Employment Hawk Full Employment Hawk
    12. November 2011 at 21:35

    “They’ve been given to duty to set demand at a level most likely to hit the dual mandate.”

    But the Fed is flagrantly ignoring the maximum employment part of the mandate. The FOMC is currently a committee of scofflaws. And that appears to have been even the case at the time the Bush stimulus was passed. With the Fed acting as a firefighter and not intervening unless it sees inflation getting out of control, expansionary fiscal policy that increases AD will be exapansionary until the Fed’s firefighting threshold has been reached.

  20. Gravatar of Mike Sax Mike Sax
    13. November 2011 at 02:35

    “The Austrian argument is that expansionary monetary policy has bad effects in the long run by creating the boom bust cycle”

    Well then John, evidently most at the Federal Reserve and European Central Bank are Austrians

  21. Gravatar of Becky Hargrove Becky Hargrove
    13. November 2011 at 05:13

    John,
    I now see where I differ from the Austrian argument. I believe that it is not necessarily expansionary monetary policy that creates boom bust cycles (although it can) but tight markets geared towards upper income, and too much financial obligation in our lives shifted towards the future in less productive sectors of the economy. When people think of loosening those markets they think of shoddy products and services but that simply is not the case. Technology is capaple of producing high quality products, and people – given the chance – will compete all their lives to improve their skills when those skills are pitched in a multi-variable matching environment.

  22. Gravatar of Becky Hargrove Becky Hargrove
    13. November 2011 at 05:22

    John,
    A little more clarity: the fact that too many life obligations get pushed to the future means too many financial instruments are sold. The fact that lower income try to buy into upper income categories means that far too many loans are made, to a public that does better buying as money comes available.

  23. Gravatar of Becky Hargrove Becky Hargrove
    13. November 2011 at 05:50

    John, I have links from the last two days that illustrate both my points. Hopefully I can get them to take. Re sticky markets, I left a comment at Cafe Hayek (Don Boudreaux) on 11/11 regarding this quote from Lachmann’s review of Mises Human Action, “existing capital combinations can be reshuffled so as to release scarce resources”.
    http://cafehayek.com/2011/11/quotation-of-the-day
    As to financial instruments: here’s Megan McCardle at the Atlantic, same day, “The Limits of Risk Engineering”
    http://www.theatlantic.com/business/archive/2

  24. Gravatar of Steve Roth Steve Roth
    13. November 2011 at 09:02

    Scott, here’s what I keep wondering:

    You say that the Fed can always offset the effects of fiscal policy. But isn’t the reverse necessarily also true? That sensible (i.e. countercyclical) fiscal policy can give the Fed the economic space it needs to exert its monetary moxie? Can ease the strain between its competing mandates?

    This especially true of automatic, nondiscretionary fiscal stabilizers, because people *know* they’re going to happen — which anchors expectations.

    Isn’t this why Bernanke keeps (increasingly) issuing his coded calls for “l’il help here!” from the fiscal side? It may be a foolish request because he’s asking for discretionary changes, but…?

  25. Gravatar of Steve Roth Steve Roth
    13. November 2011 at 09:06

    To add: aren’t fiscal automatic stabilizers especially helpful to the Fed at the ZLB, where pushing on a string is (something of) a problem, and monetary moves arguably have less leverage?

    Use fiscal to generate some inflation, so the Fed can at some point do what it does best (has the best credibility for): stomp on it.

  26. Gravatar of ssumner ssumner
    13. November 2011 at 10:06

    Don, Thanks, Craig should read your comment.

    Jake, Sorry but I don’t follow. How is having a “free hand” the opposite of central bank incompetence? A free hand can be used in a competent or incompetent way.

    Marcus, That’s a great Cassel quotation.

    Mike, I wouldn’t go that far. I’d say it is unlikely to work, unless aimed at boosting AS (as with an employer-side payroll tax cut–which I favored.) Demand-side fiscal policy is unlikely to work, and hence not worth the high budgetary cost.

    BTW, My view of monetary policy offsetting fiscal stimulus is not some novel idea I dreamed up, it is the standard new Keynesian model. I’m just reminding people of that fact.

    John, I am calling for stable NGDP growth, so your comment has no bearing on my policy proposal. The boom/bust comes from unstable NGDP growth.

    FEH, You said;

    “With the Fed acting as a firefighter and not intervening unless it sees inflation getting out of control, expansionary fiscal policy that increases AD will be expansionary until the Fed’s firefighting threshold has been reached.”

    That’s possible, but QE2 suggests otherwise. They haven’t completely given up steering (despite this post), it’s just been downgraded.

    More importantly, I argue the fiscal stimulus contributed to this passivity. You haven’t presented evidence that this is wrong. All you’ve shown is that in early 2008 they were somewhat slow to ease, but that was a very small error compared to what came later.

    Steve, You said;

    “You say that the Fed can always offset the effects of fiscal policy. But isn’t the reverse necessarily also true?”

    No, the Fed moves last.

    Obviously you may be right about fiscal stimulus, but it seems to me that the Fed did sabotage it during 2008-2011.

    You said;

    “Use fiscal to generate some inflation, so the Fed can at some point do what it does best (has the best credibility for): stomp on it.”

    That won’t work if people have rational expectations. If they expect tight money in the future, then more public spending will simply lead to less private spending.

  27. Gravatar of Mike Sax Mike Sax
    13. November 2011 at 10:44

    So Scott you think only supply side fiscal stimulus works? You do recognize the need for demand side stimulus but think it can only be effectively done through monetary policy is that right?

    Any elaboration you can make as to why that is I would be interested to hear.

  28. Gravatar of Becky Hargrove Becky Hargrove
    13. November 2011 at 11:02

    My luck with links has been lousy today so I’ll just say that Krugman found the Vox paper: (11/13/11)
    Supply Side Solutions? Beware (Wonkish)
    http://Krugman.blogs.nytimes.com/2011/11/13/

  29. Gravatar of marcus nunes marcus nunes
    13. November 2011 at 11:26

    @Becky
    Shows that you don´t read comments, even those addressed to you!
    I gave you that Vox link yesterday!(Check “upstairs)

  30. Gravatar of Becky Hargrove Becky Hargrove
    13. November 2011 at 12:15

    Marcus I am so sorry that I did not respond, I really do appreciate that you found that link and I was just in the middle of being upset at the way Krugman dismissed the article so easily. I value all the people who I am getting to know in the blogosphere for this is my social reality in the present.

  31. Gravatar of marcus nunes marcus nunes
    13. November 2011 at 12:40

    @ Becky Was mostly “fooling” with you. But Krugman is not all wrong. It´s just one more distraction from the needed SHORT RUN action. After all, Europe has been mostly trying “supply side reforms” in the middle of the “hurricane”. The Euro will be destroyed!

  32. Gravatar of Becky Hargrove Becky Hargrove
    13. November 2011 at 13:01

    Marcus,
    And how far will the damage go? It seems that the only way countries can come together in the way the EU tried, is to understand the productivity/efficiency differences in their actual GDP. That does not mean such differences are good or bad, just that they can not be rated the same. (If only I had studied math when I was young)

  33. Gravatar of Steve Roth Steve Roth
    13. November 2011 at 13:46

    “”Use fiscal to generate some inflation, so the Fed can at some point do what it does best (has the best credibility for): stomp on it.”

    That won’t work if people have rational expectations. If they expect tight money in the future, then more public spending will simply lead to less private spending.”

    Imagine I’m a business owner [I am in fact, have been, to the tune of tens of millions], trying to decide whether to spend $10,000 on equipment for my staff. No borrowing involved. I could wait a year instead, buy it then.

    Fiscal stabilizers have driven inflation to 5%. The economy (“NGDP growth”) is looking promising.

    My best guess: in one year I’ll only be able to $9,500 worth of equipment.

    I may have some vague notion that the Fed (whatever that is) might “tighten” (whatever that is) and bring down inflation (I *know* what that is). At some point. And the effects on inflation might (probably, but might) be seen at some indeterminate later point.

    While I might raise my prices over the next year, I might not choose to, or be able to. Maybe not till the end of the year. Not sure yet.

    The higher inflation — the right-now reality — has a much higher impact on my decision than vague surmises (“expectations”) about what the inflation rate might be a year or two from now. I’ll deal with that then, or at least later, when I can predict better.

    So I buy the equipment now before the buying power of my $10,000 erodes.

    Am I displaying rational expectations?

  34. Gravatar of marcus nunes marcus nunes
    13. November 2011 at 16:15

    @ Becky
    The following is a good (and pessimistic) analysis of the Euro problems:

    http://www.cer.org.uk/sites/default/files/publications/attachments/pdf/2011/essay_eurozone_9nov11-4048.pdf

  35. Gravatar of ssumner ssumner
    13. November 2011 at 19:16

    Mike, I have many extensive posts on this, but briefly the problem is that central banks target some variable linked to demand, such as inflation. If so, then fiscal stimulus has no ability to boost demand, because it will also boost inflation. But the central banks won’t allow that if it is targeting inflation. Again, that’s the standard view.

    Becky, Needless to say I think Krugman’s wrong.

    Steve, The scenario you describe is not one of an inflation targeting central bank. In that case it is possible fiscal stimulus might work. But that’s obviously not the world we live in—the Fed would push rates way higher long before we reached that scenario.

  36. Gravatar of Becky Hargrove Becky Hargrove
    14. November 2011 at 05:27

    Marcus,
    I read the Euro paper last night, it was helpful. Clearly many arguments are thwarted in the present because of the current language of growth that so many are offended by. I spoke recently of figuring out my language then the languages of everyone else. Looks like we need new languages of persuation in which people see a nation’s growth in the same light as their own potential growth as a person.

  37. Gravatar of Mike Sax Mike Sax
    14. November 2011 at 06:32

    Becky-first I should say good to meet you I am new to writing comments here at The Money Illusion; I have come to enjoy it as it gives me a lot to chew on

    As far as Krugman’s dismissal, he can be a bit cursory. But he probably sees it as Mankiw denying the efficacy of demand side stiumlus-there are differences about that, including our host, Sumner, who for the most part is not a fan of demand side stimulus either.

    As to Europe, I will point out that what seems to me to be their biggest problem is by joining the Eurozone you give up the power to set your own monetary policy.

    You are at the mercy of the ECB. This view has been put forth both by the Markent Monetarists and the New Keynseians and sounds like it’s on the nose.

    It seems to me that Europe has to decide-do they want integration or not? Either you have to go back to national currencies or you have to become a lot more politically intergrated. The trouble is that there was a lot of politicaly oppostion to even going this far.

    No doubt Britain looks smart now for not joining. But you have to either become much more integrated or totally end it. Half way is the worst of all worlds.

    As for Mankiw, this is my gloss on him. It really is just about my frustartion that no one seems to believe in fiscal stimulus anyomre even someone like Mankiw who is supposed to in some way be a “Keynesian” or “New Keynesian” which is whay I find the best hope for now that we get someting done on the monetary side-NGDP, or level targeting or whatever.

    http://diaryofarepublicanhater.blogspot.com/2011/11/greg-mankiw-this-is-what-keynesian.html

  38. Gravatar of marcus nunes marcus nunes
    14. November 2011 at 06:49

    @Becky
    I put up a post with a set of “before” analysis of the euro. You can check how/if the language changed.
    http://thefaintofheart.wordpress.com/2011/11/14/the-euro-views-from-the-trenches/

  39. Gravatar of Becky Hargrove Becky Hargrove
    14. November 2011 at 17:47

    Mike,
    I checked your blog recently after you commented here, and will definitely be checking in again. Even though I have visited The Money Illusion since 2009, only in recent months have I started to understand conversations enough to actually take part in them. You said, “Our economy and for that reason our whole society is sitting on a powder keg.” It almost seems that economists need to do something that pastors of mega churches learned to do some years back: put the big issues into highly personal terms that people can really relate to. The current crop of presidential candidates – to me – does not even reflect the average intelligence level of the population itself. But how can our government tell its own people it’s their turn to stand up and be strong? It’s not an easy thing to do. But right now we’ve got the Internet, and hopefully can keep it into the foreseeable future. Let’s put it to the best use we can. Like I told my Mom this evening, (whose sister has Alzheimers) I’m going to use my brain 24/7 while I’ve still got it!

  40. Gravatar of Mechanical vs. Intentional Economics « azmytheconomics Mechanical vs. Intentional Economics « azmytheconomics
    7. June 2012 at 10:29

    […] on mathematical models or correlations. On the intentions side, Scott Sumner compares the central bank to a captain of a ship – if the course is off, change the steering wheel until you are back […]

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